Down!

Many Congressmen had grave doubts about the wisdom of lowering taxes when nobody knew how many billions of dollars might be needed for the insecure international future. But there was no doubt that the people wanted an income-tax cut. And there was never any doubt, in an election year, that the Republican-dominated Congress meant to give it to them.

When the Senate-approved bill to cut income taxes by $4.8 billion reached the House last week, Minority Leader Sam Rayburn did his best as a Canute. He cried that it was reckless, in these times, to invite deficits: "Hadn't we better stay in a position where we will have the money to defend our shores?" But the House was in no mood for debate or delay. When the vote came, 84 Democrats deserted the Administration. The overwhelming tide of passage: 289 to 67.

That was 51 votes over the two-thirds majority needed to override the President's veto, expected this week. House and Senate majority leaders were sure that their lines would hold. They had ammunition from the Administration itself: last week the Government's surplus surged to $7,163,095,565, and all the 1947 income-tax returns were not yet totaled. When they were, the surplus might be enough to cover both the $4.8 billion tax reduction and the $3 billion budget boost which the armed forces were asking.

Something for Everybody. Individual taxpayers would find the new schedules as hard to understand as ever, but not at all difficult to take; there was something for everybody. Lifting of personal exemptions from $500 to $600 (and an extra $600 for those 65 or over) would take all or much of the sting out of the income tax for low-income families. For 7,400,000 lower-bracket families (up to $2,000 net income) it meant no more income tax at all. For about 55 of every 100 taxpayers--those with more than $2,000 but less than $5,000 net income--it meant reductions of one-half to one-quarter in what the boss withholds for the Government. Those two groups combined--about 95 of every 100 taxpayers--would get the benefit of more than 71% of the total reduction.

For the other five of every 100 taxpayers there were other benefits. The optional standard deduction was switched from a flat $500 to 10% of net income (so long as it does not exceed $1,000). Thus, the $8,000-a-year man could list $800 for deductions if he does not choose to itemize them. A bigger saving was in a new allowance after the tax has been computed. For the last two years, this has been a flat 5%. In the new schedules, this subtraction would be 17% on the first $400 of tax, 12% on the rest up to $100,000, 9.75% above that. Its average effect: a 12.6% cut.

With the Wife's Help. Along with the subtractions, something new was added which would make dinner-table conversation out of the new tax bill for many weeks. It extends to taxpayers in all states the income-splitting benefits enjoyed by those in the twelve states (and Hawaii) with community-property laws./- For middle-bracket and upper-bracket taxpayers, this system of putting man & wife into a half-&-half fiscal partnership (TIME, Nov. 3) was the real bonanza.

Under the present law, an $8,000-a-year man who is his family's sole earner has been taxed 30% on much of his income. Under the new law, he would make a combined return with his wife, each listing half of their joint income, each taking half of the deductions and other allowances. Thus, neither's income would come into the 30% surtax bracket.

A married couple with two children would benefit as follows:

Net Income Present Taxes Present Taxes Taxes under (Before Personal (in 36 states) (in Com. Prop new bill Exemptions) states)

$2,500 $ 95 $ 95 $ 17

3,000 190 190 100

4,000 380 380 266

5,000 589 570 432

6,000 798 769 598

7,000 1,045 969 780

8,000 1,292 1,178 974

9,000 1,577 1,387 1,167

10,000 1,862 1,615 1,361

15,000 3,639 2,869 2,512

20,000 5,890 4,370 3,888

25,000 8,522 6,099 5,476

50,000 24,111 18,164 16,578

100,000 62,301 49,590 45,643

If Congress puts the new provisions into effect over the President's veto, they will be retroactive to January 1. Employers expected to have new withholding schedules in operation by May 1. Before next March 15, millions of Americans would be happily figuring how much was due them in refunds for overpayments during 1948's first four months.

/- Arizona, California, Idaho, Louisiana, Michigan, Nebraska, Nevada, New Mexico, Oklahoma, Oregon, Texas, Washington.

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